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Filed Pursuant to Rule 497(c)
Registration File No.: 333-67685
PART B -- STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement has been
included within the Prospectus forming part of this Registration Statement; the
following cross-references suffixed with a "P" are made by reference to the
captions in the Prospectus.
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-4 CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
15. Cover Page........................................... Cover Page
16. Table of Contents.................................... Table of Contents
17. General Information and History...................... The Seasons Select Variable Annuity (P); Separate
Account; General Account; Investment Options (P);
Other Information
18. Services............................................. Other Information (P)
19. Purchase of Securities Being Offered................. Purchasing a Seasons Select Variable Annuity (P)
20. Underwriters......................................... Distribution of Contracts
21. Calculation of Performance Data...................... Performance Data
22. Annuity Payments..................................... Income Options (P); Annuity Payments; Annuity Unit
Values
23. Financial Statements................................. Depositor; Other Information -- Financial Statements;
Registrant; Financial Statements
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
FIXED AND VARIABLE GROUP DEFERRED
ANNUITY CONTRACTS ISSUED BY
VARIABLE ANNUITY ACCOUNT FIVE (PORTION RELATING TO THE SEASONS SELECT VARIABLE
ANNUITY)
DEPOSITOR: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be
read with the prospectus relating to the annuity contracts described above, a
copy of which may be obtained without charge by calling 800/445-SUN2 or by
written request addressed to:
Anchor National Life Insurance Company
Annuity Service Center
PO. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS FEBRUARY 17, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . .3
General Account . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Performance Data. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Annuity Unit Values . . . . . . . . . . . . . . . . . . . . . . . . .5
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Distribution of Contracts . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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SEPARATE ACCOUNT
Variable Annuity Account Five was originally established by Anchor National
Life Insurance Company (the "Company") on July 3, 1996 pursuant to the
provisions of Arizona law, as a segregated asset account of the Company. The
separate account meets the definition of a "separate account" under the
federal securities laws and is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940. This registration does not
involve supervision of the management of the separate account or the Company
by the SEC.
The assets of the separate account are the property of the Company. However,
the assets of the separate account, equal to its reserves and other contract
liabilities, are not chargeable with liabilities arising out of any other
business the Company may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to
the separate account are credited to or charged against the separate account
without regard to other income, gains, or losses of the Company.
The separate account is divided into SELECT PORTFOLIOS and STRATEGIES, with
the assets of each SELECT PORTFOLIO and STRATEGY invested in the shares of
one or more underlying investment portfolios. The Company does not guarantee
the investment performance of the separate account, its SELECT PORTFOLIOS and
STRATEGIES or the underlying investment portfolios. Values allocated to the
separate account and the amount of variable annuity payments will vary with
the values of shares of the underlying investment portfolios, and are also
reduced by insurance charges and fees.
The basic objective of a variable annuity contract is to provide variable
annuity payments which will be to some degree responsive to changes in the
economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The contract is designed
to seek to accomplish this objective by providing that variable annuity
payments will reflect the investment performance of the separate account with
respect to amounts allocated to it both before and after the Annuity Date.
Since the separate account is always fully invested in shares of the
underlying investment portfolios, its investment performance reflects the
investment performance of those entities. The values of such shares held by
the separate account fluctuate and are subject to the risks of changing
economic conditions as well as the risk inherent in the ability of the
underlying funds' managements to make necessary changes in their SELECT
PORTFOLIOS and STRATEGIES to anticipate changes in economic conditions.
Therefore, the owner bears the entire investment risk that the basic
objectives of the contract may not be realized, and that the adverse effects
of inflation may not be lessened. There can be no assurance that the
aggregate amount of variable annuity payments will equal or exceed the
Purchase Payments made with respect to a particular account for the reasons
described above, or because of the premature death of an Annuitant.
Another important feature of the contract related to its basic objective is
the Company's promise that the dollar amount of variable annuity payments
made during the lifetime of the Annuitant will not be adversely affected by
the actual mortality experience of the Company or the actual
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expenses incurred by the Company in excess of expense deductions provided for
in the contract (although the Company does not guarantee the amounts of the
variable annuity payments).
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the Company
other than those allocated to the separate account or any other segregated
asset account of the Company. A Purchase Payment may be allocated to the
one, three, five, seven or ten year fixed investment option and/or the one
year or 6-month DCA fixed account(s) available in connection with the general
account, as elected by the owner purchasing a contract. Assets supporting
amounts allocated to a fixed investment option become part of the Company's
general account assets and are available to fund the claims of all classes of
customers of the Company, as well as of its creditors. Accordingly, all of
the Company's assets held in the general account will be available to fund
the Company's obligations under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the
nature and quality of investments that may be made by life insurance
companies and the percentage of their assets that may be committed to any
particular type of investment. In general, these laws permit investments,
within specified limits and subject to certain qualifications, in federal,
state and municipal obligations, corporate bonds, preferred and common
stocks, real estate mortgages, real estate and certain other investments.
PERFORMANCE DATA
From time to time the separate account may advertise the Cash Management
Portfolio's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Cash Management Portfolio refers to the net income generated
for a contract funded by an investment in the Portfolio (which invests in
shares of the Cash Management Portfolio of Seasons Series Trust) over a
seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Portfolio is assumed to be reinvested at the
end of each seven day period. The "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed
reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred
during the seven day period, nor do they reflect the impact of premium taxes
or any withdrawal charges. The impact of other recurring charges (including
the mortality and expense risk charge, distribution expense charge and
contract maintenance fee) on both yield figures is, however, reflected in
them to the same extent it would affect the yield (or effective yield) for a
contract of average size.
The Separate Account may advertise "total return" data for its SELECT
PORTFOLIOS and STRATEGIES. Total return figures are based on historical data
and are not intended to indicate future performance. The "total return" for
a SELECT PORTFOLIO or STRATEGY is a computed rate of return that, when
compounded annually over a stated period of time and applied to a
hypothetical initial investment in a contract funded by that SELECT PORTFOLIO
or STRATEGY made at the beginning of the period, will produce the same
contract value at the end of the period that the hypothetical investment
would have produced over the same period (assuming a complete redemption of
the contract at the end of the period.) The effect of applicable Withdrawal
Charges due to the assumed redemption will be reflected in the return
figures, but may be omitted in additional return figures given for comparison.
CASH MANAGEMENT PORTFOLIO
As sales of this SELECT PORTFOLIO contract have not yet begun there is
no yield figures to report here.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-RMC)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
RMC = an allocated portion of the $35 annual contract maintenance
fee, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period. The Records Maintenance Charge (RMC) is first allocated among the
Portfolios and the general account so that each Portfolio's allocated portion
of the charge is proportional to the percentage of the number of the contract
owner's account that have money allocated to the Portfolio. The portion of
the charge allocable to the Cash Management Portfolio is further reduced, for
purposes of the yield computation, by multiplying it by the ratio that the
value of the hypothetical contract bears to value of an account of average
size contracts funded by the Cash Management Portfolio. Finally, the result is
multiplied by the fraction 7/365 to arrive at the portion attributable to the
7 day period.
The current yield is then obtained by annualizing the Base Period Return:
Current Yield = (Base Period Return) X (365/7)
The Cash Management Portfolio also quotes an "effective yield" that differs
from the current yield given above in that it takes into account the effect
of dividend reinvestment in the underlying fund. The effective yield, like
the current yield, is derived from the Base Period Return over a 7 day
period. However, the SELECT PORTFOLIOS were not available for sale prior to
the date of this Prospectus and Statement of Additional Information,
therefore no performance information is shown. When standardized performance
information is available for the SELECT PORTFOLIO we will advertise that
information.
OTHER PORTFOLIOS
The Portfolios of the separate account other than the Cash Management
Portfolio compute their performance data as "total return."
TOTAL RETURN FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
Total return for a Portfolio represents a single computed annual rate of
return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a contract funded by that Portfolio made at the beginning of
the period, will produce the same contract value at the end of the period
that the hypothetical investment would have produced over the same period.
The total rate of return (T) is computed so that it satisfies the formula:
n
P(1 +T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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The total return figures reflect the effect of both non-recurring and
recurring charges. The applicable Withdrawal Charge (if any) is deducted as
of the end of the period, to reflect the effect of the assumed complete
redemption. Total return figures are derived from historical data and are
not intended to be a projection of future performance.
As of the date of the Prospectus and this SAI sales of this contract had not
yet begun. Therefore, no performance information is contained herein.
ANNUITY PAYMENTS
INITIAL ANNUITY PAYMENT
The initial annuity payment is determined by taking the contract value, less
any premium tax, less any Market Value Adjustment that may apply in the case
of a premature annuitization of CERTAIN guarantee amounts, and then applying
it to the annuity table specified in the contract. Those tables are based on
a set amount per $1,000 of proceeds applied. The appropriate rate must be
determined by the sex (except where, as in the case of certain Qualified
contracts and other employer-sponsored retirement plans, such classification
is not permitted) and age of the Annuitant and designated second person, if
any.
The dollars applied are then divided by 1,000 and the result multiplied by
the appropriate annuity factor appearing in the table to compute the amount
of the first monthly annuity payment. In the case of a variable annuity,
that amount is divided by the value of an Annuity Unit as of the Annuity Date
to establish the number of Annuity Units representing each variable annuity
payment. The number of Annuity Units determined for the first variable
annuity payment remains constant for the second and subsequent monthly
variable annuity payments, assuming that no reallocation of contract values
is made.
SUBSEQUENT MONTHLY PAYMENTS
For a fixed annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly variable annuity payment
is determined by multiplying the number of Annuity Units, as determined in
connection with the determination of the initial monthly payment, above, by
the Annuity Unit Value as of the day preceding the date on which each annuity
payment is due.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each SELECT
PORTFOLIO and STRATEGY. The annuity tables contained in the contract are
based on a 3.5% per annum assumed investment rate. If the actual net
investment rate experienced by a SELECT PORTFOLIO or STRATEGY exceeds 3.5010,
variable annuity payments derived from allocations to that SELECT PORTFOLIO
or STRATEGY will increase over time. Conversely, if the actual rate is less
than 3.5%, variable annuity payments will decrease over time. If the net
investment rate equals 3.5%, the variable annuity payments will remain
constant. If a higher assumed investment rate had been used, the initial
monthly
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payment would be higher, but the actual net investment rate would also have
to be higher in order for annuity payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the SELECT PORTFOLIOS and/or STRATEGIES elected, and the
amount of each annuity payment will vary accordingly.
For each SELECT PORTFOLIO and/or STRATEGY, the value of an Annuity Unit is
determined by multiplying the Annuity Unit value for the preceding month by
the Net Investment Factor for the month for which the Annuity Unit value is
being calculated. The result is then multiplied by a second factor which
offsets the effect of the assumed net investment rate of 3.5% per annum which
is assumed in the annuity tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the net
investment performance of SELECT PORTFOLIO or STRATEGY from one month to the
next. The NIF may be greater or less than or equal to one; therefore, the
value of an Annuity Unit may increase, decrease or remain the same.
The NIF for any SELECT PORTFOLIO or STRATEGY for a certain month is
determined by dividing (a) by (b) where:
(a) is the Accumulation Unit value of the SELECT PORTFOLIO or STRATEGY
determined as of the end of that month, and
(b) is the Accumulation Unit value of the SELECT PORTFOLIO or STRATEGY
determined as of the end of the preceding month.
The NIF for a SELECT PORTFOLIO or STRATEGY for a given month is a measure of
the net investment performance of the SELECT PORTFOLIO or STRATEGY from the
end of the prior month to the end of the given month. A NIF of 1.000 results
from no change; a NIF greater than 1.000 results from an increase; and a NIF
less than 1.000 results from a decrease. The NIF is increased (or decreased)
in accordance with the increases (or decreases, respectively) in the value of
the shares of the underlying investment portfolios in which the SELECT
PORTFOLIO or STRATEGY invests; it is also reduced by separate account asset
charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given SELECT PORTFOLIO or STRATEGY had an
Accumulation Unit value of $11.46 as of the close of the New York Stock
Exchange ("NYSE") on the last business day in September; that its
Accumulation Unit value had been $11.44 at the close of the NYSE on the last
business day at the end of the previous month. The NIF for the month of
September is:
NIF = ($11.46/$11.44)
= 1.00174825
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ILLUSTRATIVE EXAMPLE
The change in Annuity Unit value for a SELECT PORTFOLIO or STRATEGY from one
month to the next is determined in part by multiplying the Annuity Unit value
at the prior month end by the NIF for that SELECT PORTFOLIO or STRATEGY for
the new month. In addition, however, the result of that computation must
also be multiplied by an additional factor that takes into account, and
neutralizes, the assumed investment rate of 3.5 percent per annum upon which
the annuity payment tables are based. For example, if the net investment
rate for a SELECT PORTFOLIO or STRATEGY (reflected in the NIF) were equal to
the assumed investment rate, the variable annuity payments should remain
constant (i.e., the Annuity Unit value should not change). The monthly
factor that neutralizes the assumed investment rate of 3.5 percent per annum
is:
1/[(1.035) ^ (1/12)] = 0.99713732
In the example given above, if the Annuity Unit value for the SELECT
PORTFOLIO or STRATEGY was $10.103523 on the last business day in August, the
Annuity Unit value on the last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
To determine the initial payment, the initial annuity payment for variable
annuitization is calculated based on our mortality expectations and an
assumed interest rate (AIR) of 3.5%. Thus the initial variable annuity
payment is the same as the initial payment for a fixed interest payout
annuity calculated at an effective rate of 3.5%.
The Net Investment Factor (NIF) measures the performance of the funds that
are the basis for the amount of future annuity payments. This performance is
compared to the AIR, and if the growth in the NIF is the same as the AIR rate
the payment remains the same as the prior month. If the rate of growth of
the NIF is different than the AIR, then the payment is changed
proportionately to the ratio (1+NIF)/(1+AIR), calculated on a monthly basis.
If the NIF is greater than the AIR, then this proportion is greater than one
and payments are increased. If the NIF is less than the AIR, then this
proportion is less than one and payments are decreased.
VARIABLE ANNUITY PAYMENTS
ILLUSTRATIVE EXAMPLE
Assume that a male owner, P, owns a contract in connection with which P has
allocated all of his contract value to a single SELECT PORTFOLIO or STRATEGY.
P is also the sole Annuitant and, at age 60, has elected to annuitize his
contract as a life annuity with 120 monthly payments guaranteed. As of the
last valuation preceding the Annuity Date, P's Account was credited with
7543.2456 Accumulation Units each having a value of $15.432655, (i.e., P's
Account Value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also
that the Annuity Unit value for the SELECT PORTFOLIO or STRATEGY on that same
date is $13.256932, and that the Annuity Unit value on the day immediately
prior to the second annuity payment date is $13.327695.
P's first variable annuity payment is determined from the annuity rate tables
in P's contract, using the information assumed above. From the tables, which
supply monthly annuity payments for each $1,000 of applied contract value,
P's first variable annuity payment is determined by multiplying the monthly
installment of $5.42 (Option 4 tables, male Annuitant age 60 at the Annuity
Date) by the result of dividing P's account value by $1,000:
First Payment = $5.42 x ($116,412.31/$1,000) = $630.95
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his Account to another Account) is also determined
at this time and is equal to the amount of the
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first variable annuity payment divided by the value of an Annuity Unit on the
day immediately prior to annuitization:
Annuity Units = $630.95/$13.256932 = 47.593968
P's second variable annuity payment is determined by multiplying the number
of Annuity Units by the Annuity Unit value as of the day immediately prior to
the second payment due date:
Second Payment = 47.593968 x $13.327695 = $634.32
The third and subsequent variable annuity payments are computed in a manner
similar to the second variable annuity payment.
Note that the amount of the first variable annuity payment depends on the
contract value in the relevant SELECT PORTFOLIO or STRATEGY on the Annuity
Date and thus reflects the investment performance of the SELECT PORTFOLIO or
STRATEGY net of fees and charges during the Accumulation Phase. The amount
of that payment determines the number of Annuity Units, which will remain
constant during the Annuity Phase (assuming no transfers from the SELECT
PORTFOLIO or STRATEGY). The net investment performance of the SELECT
PORTFOLIO or STRATEGY during the Annuity Phase is reflected in continuing
changes during this phase in the Annuity Unit value, which determines the
amounts of the second and subsequent variable annuity payments.
TAXES
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A contract owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a non-annuity distribution or as annuity payments under the annuity
payment option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the contract. For a payment received as a
withdrawal (partial redemption), federal tax liability is determined on a
last-in, first-out basis, meaning taxable income is withdrawn before the cost
basis of the contract is withdrawn. For contracts issued in connection with
Non-qualified plans, the cost basis is generally the Purchase Payments, while
for contracts issued in connection with Qualified plans there may be no cost
basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates. Tax penalties may also apply.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the contract bears to the total
value of annuity payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. Contract owners, Annuitants
and Beneficiaries under the contracts should seek competent financial advice
about the tax consequences of distributions under the retirement plan under
which the contracts are purchased.
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The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the separate account is not a separate entity from the
Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from
contracts issued under certain types of Qualified plans, 20% of the
distribution must be withheld, unless the payee elects to have the
distribution "rolled over" to another eligible plan in a direct "trustee to
trustee" transfer. This requirement is mandatory and cannot be waived by the
owner. Withholding on other types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section
401(a) or 403(a) of the Code, or from a tax-sheltered annuity qualified under
Section 403(b) of the Code (other than (1) annuity payments for the life (or
life expectancy) of the employee, or joint lives (or joint life expectancies)
of the employee and his or her designated Beneficiary, or for a specified
period of ten years or more; and (2) distributions required to be made under
the Code). Failure to "rollover" the entire amount of an eligible rollover
distribution (including an amount equal to the 20% portion of the
distribution that was withheld) could have adverse tax consequences,
including the imposition of a penalty tax on premature withdrawals, described
later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable
portion of the distribution, but the owner may elect in such cases to waive
the withholding requirement. If not waived, withholding is imposed (1) for
periodic payments, at the rate that would be imposed if the payments were
wages, or (2) for other distributions, at the rate of 10%. If no withholding
exemption certificate is in effect for the payee, the rate under (1) above
is computed by treating the payee as a married individual claiming 3
withholding exemptions.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified, in accordance with regulations prescribed by the
United States Treasury Department ("Treasury Department"). Disqualification
of the contract as an annuity contract would result in imposition of federal
income tax to the owner with respect to earnings allocable to the contract
prior to the receipt of payments under the contract. The Code contains a
safe harbor provision which provides that annuity contracts such as the
contracts meet the diversification requirements if, as of the close of each
calendar quarter, the underlying assets meet the diversification standards
for a regulated investment company, and no more than 55% of the total assets
consist of cash, cash items, U.S. government securities and securities of
other regulated investment companies.
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The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying annuity
variable contracts such as the contracts. The regulations amplify the
diversification requirements for variable annuity contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations an investment portfolio will be deemed adequately
diversified if (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90%
of the value of the total assets of the portfolio is represented by any four
investments. For purposes of determining whether or not the diversification
standards imposed on the underlying assets of variable contracts by Section
817(h) of the Code have been met, "each United States government agency or
instrumentality shall be treated as a separate issuer."
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to the
same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from such multiple contracts.
The Company believes that Congress intended to affect the purchase of
multiple deferred annuity contracts which may have been purchased to avoid
withdrawal income tax treatment. Owners should consult a tax adviser prior
to purchasing more than one annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their contracts.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable for use
under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under
a Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to
the plan.
Following are general descriptions of the types of Qualified plans with which
the contracts may be used. Such descriptions are not exhaustive and are for
general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications
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depending on individual facts and circumstances. Each purchaser should
obtain competent tax advice prior to purchasing a contract issued under a
Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described
in this prospectus. Generally, contracts issued pursuant to Qualified plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in
violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" Plans. Contributions made to the plan for the benefit
of the employees will not be included in the gross income of the employees
until distributed from the plan. The tax consequences to owners may vary
depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans on such items as: amounts of
allowable contributions; form, manner and timing of distributions; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with an H.R. 10 Plan should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, education and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the employee receives distributions from the contract. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
non-discrimination and withdrawals. Any employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. Sales of contracts for use with IRAs are
subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to
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persons desiring to establish an IRA. Purchasers of contracts to be qualified
as IRAs should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(d) ROTH IRA
Section 408A of the Code permits an individual to contribute to an individual
retirement program called a Roth IRA. Unlike contributions to a regular IRA
under Section 408(b) of the Code, contributions to a Roth IRA are not made on
a tax deferred basis, but distributions are tax-free if certain requirements
are satisfied. Like regular IRAs, Roth IRAs are subject to limitations on
the amount that may be contributed, those who may be eligible and the time
when distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the resulting income
tax may be spread over four years if the conversion occurs before January 1,
1999. If and when Contracts are made available for use with Roth IRAs they
may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for this purpose will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency.
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the contracts to provide benefits under the
plan. Contributions to the plan for the benefit of employees will not be
includible in the gross income of the employee until distributed from the
plan. The tax consequences to owners may vary depending upon the particular
plan design. However, the Code places limitations on all plans on such items
as amount of allowable contributions; form, manner and timing of
distributions; vesting and nonforfeitability of interests; nondiscrimination
in eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. Purchasers of contracts for use with corporate
pension or profit sharing plans should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
(f) DEFERRED COMPENSATION PLANS - SECTION 457
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish, for the benefit of their employees, deferred
compensation plans which may invest, in annuity contracts. The Code, as in
the case of Qualified plans, establishes limitations and restrictions on
eligibility, contributions and distributions. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under
a 457 plan all the plan assets shall remain solely the property of the
employer, subject only to the claims of the employer's general creditors
until such time as made available to an owner or a Beneficiary.
DISTRIBUTION OF CONTRACTS
The contracts are offered through SunAmerica Capital Services, Inc., located
at 733 Third Avenue, 4th Floor, New York, New York 10017. SunAmerica Capital
Services, Inc. is registered
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as a broker-dealer under the Securities Exchange Act of 1934, as amended, and
is a member of the National Association of Securities Dealers, Inc. The
Company and SunAmerica Capital Services, Inc. are each an indirect wholly
owned subsidiary of SunAmerica Inc. Contracts are offered on a continuous
basis.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of September
30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are presented in the prospectus. The consolidated financial
statements of the Company should be considered only as bearing on the ability
of the Company to meet its obligation under the contracts for amounts
allocated to the fixed investment options. As of the date of this prospectus,
sales of Seasons Select had not yet begun. Therefore the financial statement
for Variable Annuity Account Five is not presented here.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the Separate Account and the
Company. The financial statements referred to above have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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